PROPERTY

• Selling properties

• Buying properties

• Property Transfers

• Stamp duty

• Retirement Villages

• Rural Land

• Strata Titles

• Old System Title, Qualified Title and Limited Title

• Acquiring Title By Adverse Possession

• Subdivisions and Development

• Sale of business

• Purchase of business

• Liquor Licences

• Commercial leases

• Retail Leases

• Mortgages and Refinancing

• Private Loans

• Discretionary Trusts

• Building contracts

 Selling properties

In New South Wales the law requires that prior to offering a residential property for sale there must be available to prospective purchasers a draft contract for sale of land. Regardless of whether the property is residential, it is helpful to the purchaser if the contract is thoroughly prepared and includes sufficient documents to enable the prospective purchasers to clearly understand the full nature of the property they are purchasing.

Accordingly it is our recommendation that if you wish to improve your chances of getting a quick sale for the best possible price then the contract should include an up to date survey and a Council Building Certificate in relation to the property.

A survey will indicate to prospective purchasers the location of the improvements on the land relative to the boundaries. It will show where the fences are located relative to the boundaries and whether there are any encroachments across the boundaries by improvements on the subject property or by improvements on neighboring properties.

A Council building certificate indicates to purchasers that the local Council will not issue work orders against the property in its current configuration for a period of seven (7) years. This may be taken by the prospective purchasers as an indication that the improvements on the land were built with Council approval and comply with building regulations. Neither a survey or Council Building Certificate are compulsory documents however they can have the effect of putting the purchaser at ease by demystifying the property and therefore can lead to a quicker sale for a better price.

 The Contract

If it is intended to avoid delays in selling a property then the contract should not be drafted in such a way that it is so one sided in favour of the vendor that purchasers are reluctant to agree to its terms. Of course the contract should provide the vendor with sufficient protection without loading the document up with unnecessary or onerous special conditions. Some contracts for sale of land can be seen to be drawn with an excessive number of special conditions most of which are heavily biased to the vendor however this often leads to delays in getting the contract exchanged while the purchasers attempt to negotiate out the unfair terms. The delay in getting to exchange increases the chance that the purchaser will loose interest in the property.

 The Selling Agent

Potentially costly problems can arise when a property is listed by more than one selling agent. If not handled properly the question of agency can resolve in the vendor being liable for paying more than one sales commission. To avoid the problems appropriate terms must be included in the contract for sale and appropriate enquiries made before exchange of contracts.

 Delays in Exchange

The time between the vendor and purchaser reaching agreement on price and the solicitors exchanging contracts can be a worrying time for both vendor and purchaser. It may be in your best interest that this period be kept to a minimum to reduce the risk of the other party electing not to proceed. The time between exchange of contracts and completion is normally six (6) weeks however this is completely negotiable between the vendor and purchaser.

Normally if you are putting your property on the market with the intention of purchasing another property then we recommend that the completion period be specified as either ten (10) or twelve (12) weeks in order to improve your chances of finding a new property before completion of the sale of the property you are selling.

 GST Liability

If you are selling a property that is not residential then it is crucial that during the negotiations you are aware of whether you are negotiating a GST inclusive or GST exclusive price. In fact it is best that you clearly establish your GST liability before deciding whether to put the property on the market, and certainly before you decide on the asking price.

 Specific Disclosures

Generally you will improve the chance of a smooth sale if you make appropriate disclosures about the property in the sale contract. The general principle is that once contracts are exchanged the purchaser cannot make objections or claim compensation in relation to anything that is disclosed in the contract. For this reason you would be advised to disclose in the contract matters such as improvements that were constructed without Council approval, fences that are a long way off the boundaries, swimming pool fencing that does not comply and any favours you may have done for your neighbors such as allowing them to lay drainage pipes through the land.

 Pest and Building Reports

Generally purchasers will obtain their own pest and building reports on the property prior to exchange of contracts. However if you have regularly had pest inspections it may be useful to provide the selling agent with copies of the pest inspection certificates. It is not appropriate however that these documents be included in the contract for sale.

 Tax Advice

If you are selling a property that is not your principal place of residence then you should ask your accountant to determine your liability for land tax, capital gains tax and GST as these will greatly affect your net return from the sale.

 Selling with a Tenant

If you are selling a property that has a tenant then you must consider whether you wish to sell with vacant possession or subject to the tenancies. Some properties sell best with a tenant in place with a long term lease. For example commercial premises and factories. On the other hand residential properties are generally more likely to be attractive to a wider range of prospective purchasers if they are being sold with vacant possession.

 Inclusions and Exclusions

When you decide to sell your property you should at that time decide on the list of inclusions. Inclusions can be divided into fixtures and fittings. Generally fittings must be taken away from the property by you prior to completion unless they are specified in the contract as inclusions. On the other hand fixtures must remain at the property unless they are specified in the contract as exclusions.

 The Agency Agreement

Prior to signing an Agency Agreement with the selling agent you should consider carefully the terms of the Agency Agreement including the amount of commission payable on the sale, whether the property is to be sold by auction or private negotiation through the agent, the amount to be paid to the agent as a marketing budget and the ways in which that amount will be spent. You should also consider the appropriate term of the "exclusive agency period".

 The Deposit

Normally the deposit paid by the purchaser on exchange will be retained by the selling agent in their trust account pending completion. In appropriate circumstances you may be able to negotiate release of the deposit to you prior to completion however this is normally only agreed to on the basis that you will only use the deposit as the deposit on the purchase of another property within in New South Wales.

The prospective purchaser may ask you whether you will accept a deposit bond or bank guarantee in lieu of a cash deposit. You may also be asked to accept a deposit in an amount of less than 10% of the purchase price. In these cases appropriate special conditions should be added to the contract.

 Early Access to the Property

You may be asked to allow the purchaser to have access to your property prior to completion. If the property is vacant you may be asked to allow the purchaser to move in or commence refurbishing or alterations. You may also be asked to allow the purchaser's tenant to move in. Generally it is our recommendation that the purchaser not be given any access to the property at all prior to completion except for a final inspection shortly before completion.

 Budgeting

It is probably prudent for you to prepare a detailed budget of all of the expenses you will incur when selling a property, particularly if you intend to use the proceed of the sale to purchase another property. You should identify all of the possible items of expenditure throughout the transaction and allow generous amounts for each allowing for worst case scenarios. Potential costs may include agent's sales commission, costs of paying out the existing loan, legal fees and disbursements, survey, council building certificate and removalist's cost.

 Things to Check before Proceeding

Generally it is our strong recommendation that prior to exchanging contracts or bidding at an auction to buy a property you should first obtain a building report on the property, a pest report for the property, have an unconditional loan approval from your lending institution and have the contract checked. If you are buying a strata title property then it is most important that you obtain a report on the affairs of the Owners Corporation prior to exchange.

When you purchase a property you do not have the benefit of any "warranties as to quality" in the contract. Accordingly if you discover any structural or other defects in the property after exchange then you will probably have no right to compensation and no right to get out of the contract. On the other hand the contract does contain "warranties as to title". In other words if you discover after exchanging contracts that the title to the property is other than as represented in the contract then you may have the right to rescind and have your deposit refunded, or you may have the right to claim compensation.

 Introduction by More than One Selling Agent

If you decide to purchase a property that has been shown to you by more than one selling agent then it is most important that the contract is in a form that will not make you liable to pay the sales commission. Most contracts for sale of land are prepared in a way that could make you liable to pay a sales commission if you were initially introduced to the property by one selling agent and subsequently purchase the property through another agent.

 More than One Purchaser

If you are purchasing the property with another person then you should consider carefully whether you should buy as joint tenants or tenants in common. It is important to discuss with your fellow purchaser the difference between the two types of ownership. If you decide to purchase as tenants in common then you must decide on your respective shares in the property. This will often be determined by your family or marital status.

If you are purchasing the property together with another person strictly for business purposes then it most likely that you will want to be tenants in common. If you are purchasing with your spouse or life partner then you will probably want to be joint tenants, however if you or your spouse or partner have children from a previous marriage then it may be best that you purchase as tenants in common.

 Inclusions and Exclusions

When purchasing a property you must think carefully about the inclusions to be shown on the contract. The vendor cannot be compelled to leave fittings, items of furniture or other chattels at the property unless they are specified in the contract as "inclusions". You should also consider those items in the property that you don't wish to have and you should ensure that they are specified in the contract as "exclusions" so that the vendor is compelled to dispose of them prior to completion of your purchase.

 Surveys

You will not really have an accurate picture of what you are purchasing unless the contract for sale of land includes an identification survey. The survey should be "current" in the sense that it should have been carried out after the most recent improvements were added to the land. The survey will show you where the improvements are located relative to the boundaries. It should also show you where the fences sit relative to the boundaries and whether there are any encroachments across the boundaries. It is generally the case that you cannot object to these types of irregularities after exchange of contracts and accordingly an identification survey should be sighted by you prior to exchange.

 Council Building Certificates

We generally recommend that prior to exchange of contracts you sight a Council Building Certificate for the property. Such a certificate may be taken by you as an indication that the improvements on the land were built in accordance with approved plans and comply with current building regulations. The local Council will generally not issue a Council Building Certificate for a property if the property contains illegal structures or structures constructed without Council approval.

Accordingly it is our recommendation that you require that the vendor provide you with a Council Building Certificate or else explain why they are not willing to do so.

Often a vendor is not willing to make application for a Council Building Certificate because they know of some non-compliance. Often non-compliance is relatively minor such as dilapidated pool fencing or an unapproved garden shed or pergola.

 Illegal Building Structures

If you are purchasing a property and the vendor has refused to provide a survey and Council Building Certificate then you must be prepared to run the risk that there are illegal structures on the property and that your financial institution will not require those documents prior to advancing your home loan. If you exchange contracts without a survey and Council Building Certificate and then discover that your financial institution will not provide the loan then you are risking loosing your deposit and being sued for losses incurred by the vendor.

 The Completion Date

The contract for sale of land will specify a completion period which is the time between exchange of contracts and completion of the purchase. This period is normally six (6) weeks however it is open to negotiation and there maybe reasons why you might want a different period or a specific completion date.

 Sewer Connections

When you purchase a property the contract must include a sewer service diagram which should be checked to ensure that improvements are not constructed over the sewer main and that connections from the building to the sewer main do not pass through neighboring properties without appropriate easements. If you intend to carryout building works on the property you should ensure that the sewer main is not located where you intend to build.

 Disposal of Stormwater

Storm water which flows off the roof of the buildings on a property and off the driveways and other hard surfaces should be disposed of in accordance with the local Council requirements. Such storm water must never be piped into the sewer pipes. Generally Councils require that storm-water be discharged into the curb, into a natural water course, into storm water easements in neighboring properties or sometimes into "absorption trenches". When purchasing a property you should investigate the destination of the storm water.

 Zoning of the Property

The contract for sale of land will include a Council Planning Certificate which will disclose the zoning of the property and whether the property is affected by Council's policies in respect of a number of different matters. The entire Planning Certificate should be considered with care particularly if you are purchasing with the intention of developing the land or carrying out construction works.

 Special Conditions

Most contracts for sale of land include various special conditions which normally are for the benefit of the vendor. It is important that before exchanging contracts you have an understanding of all of the special conditions to ensure that they are not onerous or otherwise unsatisfactory. Like all parts of a contract the special conditions are negotiable.

 Insurance

Risk in the property will pass to you on completion and accordingly it is essential that prior to completion you have in place building insurance. Normally your lending institution will advise you of the amount of cover they require. The lending institution will also require that they be shown as an interested party on the policy.

 Stamp Duty

Stamp duty represents the most substantial expense for you in relation to your purchase. Remember that there is stamp duty payable on the contract for sale of land and stamp duty is payable on any loan documents relating to your purchase. It is generally essential that purchasers factor stamp duty expenses into their budget.

 Works by the Vendor

When you negotiate the purchase of a property it is important that you make a note of any works that the vendor promises to do. For example your vendor may promise to remove building materials and rubble from under the house or fix pool fencing or carryout unfinished painting. You will have little chance of enforcing such promises unless they are included as special conditions in the contract prior to exchange.

 First Home Buyers Benefits

If you are a first home buyer then you should make yourself familiar with the rules regarding the First Home Owners Grant and the stamp duty concessions that may be available to you.

 Foreign Investment Review Board Approval

If you are purchasing a property and you are not an Australian Citizen or does not have permanent residency then you should check whether you need to obtain prior approval from the Foreign Investment Review Board.

 Cooling off Rights

Do not assume that you will have the benefit of a cooling off period when you purchase real estate. You will only have the benefit of a cooling off period if the vendor elects to give you the right to rescind the contract. Never exchange contracts, sign any documents or hand over any money unless you are crystal clear as to whether you are binding yourself to a contract. If you enter into a contract to purchase land and then are unable to complete or do not wish to go through with the purchase then it is most likely that you will loose your deposit and you may sued for other losses incurred by the vendor.

 The Title to the Property

The contract that you sign to purchase a property should include details of all easements, covenants, restrictions on use, rights of way, by-laws and the like associated with the property. It is strongly recommended that you understand your rights and obligations in respect of these features of the property.

 Buying from an Unregistered Plan

If you are buying land from an unregistered plan of subdivision or a home unit from an unregistered strata plan then there are particular dangers for you because the property may be ill defined and you are likely to be bound by the contract for purchase without having actually physically seen what you are buying.

Purchasers of vacant land from an unregistered plan of subdivision are particularly at risk if the roads and services have not been constructed within the subdivision at the time of exchange of contracts.

Purchasers of home units from unregistered strata plans run the risk of having to deal with building defects as one of the first owners in the property. The contracts for the purchase of such properties should contain protections as much as possible. In some cases purchasers from unregistered plans may be able to delay payment of stamp duty. This concession does not apply to the case of vacant land or non-residential properties.

 Budgeting

It is probably prudent for you to prepare a detailed budget of all of the expenses you will incur when purchasing a property. You should identify all of the possible items of expenditure throughout the transaction and allow generous amounts for each, allowing for worst case scenarios.

Potential costs may include stamp duty on the contract and transfer, stamp duty on loan documents, loan application fees, valuation fees, mortgage insurance, strata inspections report, building report, pest report, legal fees and disbursements, geo-technical engineers report, survey, Council Building Certificate, insurance and removalist's cost.

From time to time real estate transactions occur without the use of a contract for sale of land. For example if you are married or in a defacto relationship and your principal place of residence is registered in the name of only one of you, then you might reach agreement that half the property be transferred to your spouse or partner. In those cases it is generally not necessary to have a contract for sale of land. Those transactions may be done using only a Department of Lands Transfer form and may in certain cases be exempt from payment of stamp duty.

You may wish to buy or sell property from or to a close family member. Sometimes in these cases it is appropriate not to use a contract for sale of land. However generally it is our recommendation that the parties be separately represented by solicitors and that a formal contract for sale of land be used.

In appropriate cases the purchaser may elect not to obtain certain searches and enquiries and may elect not to raise requisitions. In any case these types of transactions will attract stamp duty regardless of sale price agreed between the parties. The stamp duty is determined according to a valuation of the property by a registered valuer.

Stamp duty may be described as a form of tax that is imposed on various transactions generally referred to as "dutiable transactions". These include leases, mortgages, motor vehicle registration, transfers of leases, transfers of land, transfers of businesses and franchises, transfers of shares or trust units. Stamp duty, as with capital gains tax and land tax, is a highly technical area of law.

It is alarmingly easy for an untrained person to trigger a stamp duty liability and accordingly the possibility of stamp duty liability should always be considered before commencing transactions that may be dutiable. Like capital gains tax and land tax, there are concessions and exemptions from stamp duty.

On the other hand the law in this regard is most unforgiving and harsh penalties and penalty interest can apply if appropriate stamp duty is not paid on time. The amounts of stamp duty payable are often in the tens of thousands of dollars and sometimes in the hundreds of thousands of dollars. Dutiable transactions cannot be "undone" on grounds that the parties to the transaction did not realise that a stamp duty liability would be generated.

Acquisition of a home unit or villa in a retirement village is a property transaction with many unique aspects. Generally retirement villages are restricted to residents who are 55 years of age or older and their spouses. Some retirement villages permit residents who are under that age if they have a disability. Some retirement villages are not for profit organisations. The amount payable in respect of those villages may be subsided for the needy. Other retirement villages are clearly operated with a profit motive.

 Nature of Ownership

It is important that you understand the legal nature of any retirement village you wish to enter. Some villages offer freehold Torrens Title properties. Some village accommodation is Strata Title operating very much like a normal home unit development with an Owners Corporation raising quarterly levies for a sinking fund, administrative fund and sometimes special levies. Some retirement villages operate on the basis that you are purchasing a long term lease or licence to occupy the premises. In all cases stamp duty will be payable on the documentation.

 Facilities

Retirement villages vary greatly in their accommodation and facilities. Some villages provide the full variety of homes such as single room apartments, 1, 2 and 3 bedroom home units, townhouse style units and villas and some have freestanding cottages. Many retirement villages offer high levels of services including fully serviced hostel type accommodation for the frail. Most retirement villages include shared facilities such as recreation rooms, dining halls, consulting rooms for visiting professionals, a bus for taking residents to local shopping centres, libraries, craft rooms, sporting facilities and the like.

 Expenses

When considering entering a retirement village you must clearly determine the amounts payable on entry, ongoing costs as well as the style of accommodation you will need, levels of care you will require and the lifestyle features such as leisure facilities and the like. Generally retirement villages are occupied by retired persons, generally on fixed incomes, who must very carefully consider their budget.

A person acquiring a retirement village unit must be very clear on the initial entry price, purchase price or "ingoing contribution". They must also be sure that they will be able to pay any rent or recurring charges. The documentation of most villages includes reference to payment of a departure fee, exit fee or deferred management fee. These amounts may exceed 25% of the payment you might be expecting to receive when leaving the retirement village. It is often important that you are very clear on these costs as they may impact on your estate planning decisions.

Generally, no matter what type of legal documentation is involved, you or your estate may not be entitled to a refund and recurrent charges may not stop until a new resident has been found to take your place.

 Medicals

Many retirement villages will require that you be examined by a doctor of their choosing prior to you entering the village. If you are too frail the village may decide that you require a higher level of service than they have to offer. Not all retirement villages offer high levels of service and accordingly some reserve the right to terminate your right to occupy the village if they deem that you require the higher levels of service due to medical problems or infirmity.

 Repairs and Maintenance

You must understand your responsibility for maintenance, repairs, council rates and water rates, electricity, telephone and gas. Often on termination of residency at a retirement village the resident is responsibility for the cost of refurbishing the unit. Village management often requires a share of any capital gain made by the resident but we are unaware of any village prepared to share capital losses.

 Affordability

It would be a mistake for you to compare the cost of a retirement village property with a comparable property that is not part of a retirement village unless you consider the relevant restrictions, extra fees, ongoing charges, deferred management fees and the like. Retirement villages can vary enormously in price and ongoing costs and at the end of the day you will always need money to live on. Hence careful budgeting and future planning is essential.

 Disputes

For most people the move to a retirement village involves a certain element of risk if they have not experienced living in close proximity to their neighbours, sharing common facilities and being bound by village rules. You must keep in mind if you are downsizing your accommodation you will need to dispose of a considerable amount of your personal property and furniture. You may not be able to have pets in the particular retirement village.

On the one hand you may be relieved of many responsibilities involving maintenance of your accommodation however on the other hand you will be taking on different liabilities and obligations to the village and your neighbours.

If you are buying or selling rural land then a number of unique issues will need to be considered by you and dealt with in the contract.

 Surveys

Often people hold the view that farms are too large to survey without incurring considerable cost and accordingly the question arises as to whether the boundary fences are located sufficiently close to the boundaries. You must try to determine whether there are any disputes with neighbours as to the proper location of boundary fences as these types of disputes tend to last for a long time because neither party is prepared to pay the cost of the survey. In any case it is wrong to assume that boundary fences are always located on the boundaries.

 Water

You must be very clear before entering into a contract for the purchase of rural land as to whether you will be obtaining the benefit of any water licence. The terms and conditions of any water licence should be considered prior to exchange of contracts by obtaining a copy. Copies of relevant water licences can be obtained from the local Department of Lands and Water Conservation. Sometimes rural properties have the benefit of a private water scheme. If so then you must peruse a copy of any agreement and the constitution of any water users group. Sometimes the ownership of a farm will involve associated ownership of shares in a private water users group or a co-operative. The shares in such entities should be transferred to you on completion of your purchase of the property. You must be clear about the amount of water allocated to you under these types of arrangements.

 Unmade Roads

You should check the deposited plan of which the property forms part to determine which parts of the property if any are designated as roads. Many rural roads through properties are never constructed and their location is impossible to determine by mere visual inspection of the land. You will be required to fence your property off from the road unless you have a road closure permit. Such a permit will permit you to leave the road unfenced and to some extent treat the road as if it was part of the farm.

 Rural Licences and Leases

You must know whether a property you are purchasing includes Crown licences or Crown leases. These may not be transferable. In those cases the purchase of a farm including part Crown licenses or Crown leases may involve application to Department of Lands and Water Conservation for a new lease or licence. Special provisions must be included in the contract in these cases.

 Land Clearing

You must not assume that you will be entitled to clear the land you are purchasing. There are limits on the amount of clearing you can do in any one year. Generally approval is necessary prior to clearing. You should aim to understand the soil conservation and native vegetation issues before exchanging contracts.

 Mining Rights

Certain sections of the State are subject to mining exploration licences and some have already been mined. You should determine whether your perspective purchase is a property within a Mines Subsidence District. Native title issues may be relevant to farms consisting of land subject to Crown licences, leases and western division grazing leases.

 Access

Before proceeding to purchase rural land you must be certain that you will not be "landlocked". Farms often have the appearance of having access to public roads or having the benefit of roads through adjoining properties however actual access rights can only be determined by careful consideration of the title to the property. It may be prudent for you to view council maps to clarify the question of access to the property. You must also be sure that you can bring electricity, telephone and other services onto the land.

 Land Area

Correct determination of the actual area of rural lands being purchased can be extremely difficult and confusing. This is particular the case when a farm consists of a number of different lots contained in different deposited plans. It is not particular unusual for a farm to consist of partly Torrens Title, partly Old System Title, partly Leasehold and partly Crown Licence. It is often the case that the different deposited plans (or plans of subdivision) defining the property are drawn to different scales sometimes making it impossible to determine where the boundaries of the various lots within the farm meet. In addition to correctly determining the area of a farm it is also very important that you are familiar with the easements, covenants and restrictions on use applying to the property.

 Ministers Consent

The transfer of some rural lands requires the consent of the Minister. This involves extra fees and can take a considerable amount of time. Appropriate contractual provisions should be included in relation to land requiring Minister's consent.

 Contaminated Land

Prior to you exchanging contracts you must be clear on whether any part of the land is contaminated. Sometimes cattle and sheep dips cause contamination that can require remediation particularly if it is near a watercourse. Similarly domestic septic systems and diaries located near watercourses can cause problems. Chemical residues from sprays previously used to manage pests contaminate some properties.

 Building Rights

If you are concerned about the building rights associated with a property you are purchasing then you should determine the minimum area necessary for building approval before exchanging contracts. If you intend to subdivide the property then you should make appropriate enquiries at the local council. Be aware that sometimes rights to build or subdivide can lapse and the value of the property and your future plans will be adversely affected. Specific checks should be done if you are intending to purchase land for dairy farming, irrigation, aqua culture or organic farming.

 Tax

Rural land transfers involve particular issues in relation to GST, stamp duty and capital gains tax. Your accountant or tax adviser should be consulted prior to exchange of contracts. You must also consider the advantages and disadvantages of purchasing in your own name, or jointly with another person or persons as tenants in common or in the name of your company or trust. A consultation with your accountant or tax adviser is also essential in this regard.

 Inclusions and Equipment

A sale of land often includes the sale of a wide range of chattels including tools, farming implements, pumps, sheds, tanks, gates, cattle yards, irrigation equipment, stock and crops. Your contract should include an accurate inventory. Be aware that the crops that you see on the property prior to exchange of contracts may have been harvested by settlement. Stock carrying capacity is highly relevant to the profitability of the farming enterprise to be carried out on the land. Silos and haysheds may be full when you first inspect the property but will they be depleted by completion? In any case rural land transactions involve substantial enterprises and should always be carried out with complete documentation and prudent legal process.

 Strata Report

If you are purchasing an existing Strata Title property then we strongly recommend that prior to exchange of contracts you obtain a written report on the affairs of the Owners Corporation prepared by a professional in the field.

The strata report should disclose whether the strata roll is properly kept, whether the initial period is completed. It should provide details of the insurance policies currently held by the Owners Corporation, the amount held by the Owners Corporation in the administrative fund and the sinking fund, the amounts of current levies payable to the Owners Corporation in relation to the property, whether the Owners Corporation has any loans, whether there have been any recent changes in by laws, the details of the managing agent and whether there appears to be a likelihood of any special levies.

Typically strata reports also give an outline of the history of plumbing problems, disputes, water penetration problems and building defects in the building. They also often give an outline of the important issues that would have been dealt with by the Owners Corporation or the executive committee over recent years. Accordingly the report can assist you in making your decision whether to proceed to purchase or not. If you do go ahead and purchase then the strata report will provide you with details of some of the issues facing the owners in the building.

 Buying from an Unregistered Plan

If you are buying newly constructed strata property or if you are buying "off the plan" then of course you are taking a risk that you will have to deal with the "teething troubles" of the building. In those circumstances you should be familiar with the concept of the "initial period", the holding of the first annual general meeting of the Owners Corporation and the limits that the law places on the powers of the original owner during the initial period.

 Meetings

As an owner of a strata unit you will be entitled to vote at meetings of the Owners Corporation. Your voting rights are in proportion to your unit entitlement. You are entitled to put motions on the agenda for general meetings and speak in favour of such motions. You are also entitled to speak against motions that you do not wish to have passed. You should be familiar with the role of proxies in the management of an Owners Corporation and it may be helpful if you have some knowledge of the way in which meetings should be conducted.

 The Committee

As an owner of a unit in a strata development you may be entitled to be nominated for election as an executive committee member. Regardless of whether you become a committee member it would be useful for you to understand the powers of the executive committee as against the powers of owners at general meetings of the Owners Corporation. As an owner you will be entitled to receive minutes of executive committee meetings.

 Caretakers and Building Managers

It has become more common for larger strata developments to have caretakers and building managers. The appointment and powers of caretakers and building managers must be specified in the by laws of the Owners Corporation and in any management agreements. If caretakers or building managers do not perform satisfactorily or if their charges are unfair or if the management agreement is harsh, oppressive, unconscionable or unreasonable then the owners, through the Owners Corporation, may apply to a tribunal for relevant orders.

As an owner of a property in a strata development you should be familiar with the functions, duties and powers of any strata manager which the Owners Corporation may choose to appoint. Normally the strata manager will be your point of contact for getting things done around the building.

 Record Keeping

The law requires that the Owners Corporation maintain a strata roll and keep certain financial records. The Owners Corporation must also hold relevant insurance policies and maintain administrative and sinking funds from levies raised against the owners.

 Lots versus Common Property

As an owner of a property in a strata scheme it is most likely that your property consists only of air space. That part of the strata development which is not owned by owners individually will be owned by the Owners Corporation and known as the common property.

Generally the common property consists of floors, walls, ceramic tiles, pipes in the common property, electrical wiring in the common property, parquetry flooring and floor boards, ceilings and cornices, balcony doors, driveways, gardens, plumbing and sometimes lifts, tennis courts, swimming pools, gymnasiums, shared air conditioners and the like. It is often important to identify whether part of a strata scheme is part of a lot or common property in order to determine the parties responsible for its maintenance and repair.

 By-Laws

You as owner and any tenants you have in the property will be subject to the strata by-laws applicable to the particular strata scheme. Commonly strata by laws adopted by strata schemes are in a standard form however many strata schemes have their own individual by laws and sometimes additional by laws customized as appropriate. Before proceeding to purchase in a strata development you should check the form of the by-laws.

If you are purchasing a strata unit in a commercial development and you wish to conduct a business then you must check that the business is permitted under the by-laws. If you are purchasing a strata home unit and you wish to live in it with a pet then it is most important that you determine whether you have the right to have a pet in the property.

 Disputes

Living or operating your business in a strata development means that you will be in very close proximity to your neighbours and you can expect that you might see them often. If you see a dispute arising you should at the earliest opportunity familiarise yourself with the dispute resolution mechanisms provided in the strata legislation.

Most land in New South Wales has "Torrens Title". However there are approximately 15,000 properties in New South Wales whose ownership is recorded under "Old System". If you are contemplating purchasing Old System land then you can be assured that it can be done safely but the process is more complicated. The Old System of recording land titles is based on English common law. Each time land was sold, leased or mortgaged a separate deed is signed by the parties and subsequent purchasers must examine a whole series of deeds known as "a chain of title".

It has not always been compulsory that deeds in the chain of title be registered with the Department of Lands and accordingly your purchase of Old System land will require a meticulous search which will involve additional expense in order to check that you are purchasing land with "good title".

Generally financial institutions do not see any problem in financing the purchase of Old System land. The Department of Lands has a process in place for conversion of Old System land to Torrens Title.

If you own Old System land you may commence the conversion process yourself, otherwise all dealings lodged on Old System land will result in the automatic commencement of the conversion process. Land in the process of conversion from Old System to Torrens is subject to a "caution" generally for a period of twelve years during which time it will be referred to as having "Qualified Title" and perhaps "Limited Title". These references serve as a warning to purchasers that in addition to searching the Torrens Title register it is necessary to conduct searches to establish a complete chain of title to the land.

Under New South Wales law it is possible for you to become the owner of land by "adverse possession". If you are able to complete the highly technical process then you will obtain a "possessory title" and you will become the absolute owner of the land which you may keep, lease, transfer, sell or grant various interests over as if you had purchased it in the usual way. In order to make an application for a possessory title you must have exerted dominion over the land continuously for a period of not less than 12 years. Under New South Wales law relating to Torrens land you cannot make an application for possessory title to part of a lot.

You will not be entitled to possessory title unless your occupation of the land is "adverse" to the title of the registered owner. Accordingly you cannot expect to obtain possessory title of land that you have leased or occupied pursuant to some arrangement with the registered owner. Any break in your possession of the land whether caused by the registered owner or any other party will mean that the 12 year period must recommence.

Application for possessory title is made by lodging appropriate documentation with the Department of Lands. This must include statutory declarations by a number of disinterested persons who are required to swear to the various facts on which you seek to rely to establish your right to possessory title.

Your application must be accompanied by a letter from the local council stating various facts as well as a survey of the land by a registered surveyor. Often land that is subject to an application for possessory title is land which has been overlooked by executors of a deceased estate. Accordingly your application must include probate searches identifying those persons entitled to be registered proprietors of the land but for your possessory title.

A grant of possessory title in your favour will be regarded as a dutiable transaction for the purpose of stamp duty. Accordingly it will be necessary to arrange for a valuer to determine the dutiable value of the land. Stamp duty must be paid to the Office of State Revenue at the normal "property transfer rates".

The Department of Lands is required to give the owners of neighbouring land notice of your application for possessory title. The notice period is 35 days however this can be waived if you can obtain letters from your neighbours consenting to your application. It is generally recommended that as soon as you form the view that you are entitled to possessory title to land you should lodge a caveat while preparing your application.

You will be aware of the considerable capital gains that can be achieved by subdividing a parcel of land into a number of smaller lots and selling them separately. This may involve the creation of separate lots of vacant land from the original block, or strata developments that result in a number of strata lots such as home units or commercial units. This can be a very risky enterprise and accordingly land should not be purchased for the purpose of subdivision or development unless extensive research has been carried out to ensure that the relevant authorities will allow development of the land.

If you wish to purchase land for the purpose of subdivision or development you would be advised to include a "subject to development consent" clause in the contract. Such clauses must be carefully drafted so that you will have the right to pull out of the purchase if you cannot obtain your desired development consent from the relevant authorities by a specified date commonly called a "sunset date". The clause should also entitle you to rescind the contract and recover your deposit if the relevant authorities grant development consent on conditions that are unacceptable to you.

If you are contemplating purchasing land for subdivision or development then an alternative to a contract with a "subject to development consent" clause is an "option to purchase".

Typically an option to purchase will give you the right to require that the vendor sell the property to you on specified terms. You will be required to pay an option fee when entering into the option agreement. Generally the intention with options is that the purchaser will not exercise the option if they cannot acquire a satisfactory development consent for their intended subdivision or development.

Prior to entering into a contract or an option agreement to acquire land for subdivision or development you should consult the local council and surveyors and town planners experienced in the particular council area. Subdivision and development of land involves a unique mix of land law, local authority planning policy, and sometimes politics. It takes meticulous planning and financial studies if profit is the motive.

Subdivision and development projects commenced without sufficient research and consultation with experienced town planners, surveyors and consultants can result in heavy losses.

 The Procedure

Generally in relatively simply matters of subdivision and development the procedure will involve securing the land (whether by purchasing or acquiring an option to purchase), preparing your Development Application (normally with the assistance of town planners, surveyors, planning consultants and the like), lodging the Development Application with the local Council and then waiting for Council's decision.

Once Council has issued its determination in response to your Development Application then you will need to assess the conditions and decide whether they are acceptable to you. If the conditions are not acceptable (or if a Council refuses its consent) then you may need to consider the various appeal processes.

Once you have obtained development consent on conditionals acceptable to you then, if you are acquiring the land by option, then you must exercise the option to purchase, and otherwise carryout the development work and comply with Council's conditions. An appropriate plan (normally a Plan of Subdivision or a Strata Plan) and a Section 88B Instrument creating easements, covenants, restrictions on use and the like, must be lodged with Council.

When all of the development conditions have been met Council should sign off the plan and release it to you. It will then be necessary to have all interested parties sign off the strata plan including any financial institution that has a mortgage over the property as well as any tenants who have a registered lease. The plan is then lodged for checking and registration with the Department of Lands.

If the Department of Lands is for some reason not satisfied with the plan the Department will make requisitions against you or the surveyor. Once all requisitions have been satisfied and fees paid the Department of Lands will register the plan and issue new Certificates of Title for the newly created lots to you.

 Preparation

If you intend to sell your business then it is most important that prior to the marketing commencing you prepare the business so that it presents to prospective purchasers as an attractive proposition. Preparation of the business for sale can include a number of different things depending on the type of business, however examples include:-

1. making sure that all accounts are up to date;
   
   
2. making sure that tax returns have been filed and returned;
   
   
3. the lease of the premises should be formalised and registered with the Department of Lands;
   
   
4. have the original copy of the lease ready for inspection;
   
   
5. all outstanding moneys should be paid to the landlord so that there is no problem with getting the landlord's consent for the assignment of the lease to the purchaser of the business;
   
   
6. all employee entitlements should be properly recorded and any moneys owing to employees paid;
   
   
7. the employees' records should be up to date and kept in accordance with industrial laws;
   
   
8. workplace agreements and contracts of employment should all be properly filed on the employees' files;
   
   
9. any written contracts of contractors should be available for inspection;
   
   
10. the computers used in the business should all be in proper order and there should be no pirated software anywhere in the business;
    
    
11. instruction books, compact discs, peripherals and cables should all be properly arranged;
    
    
12. jobs that were meant to be done around the premises such as painting, repairs, tidying up and the like should all be done;
    
    
13. if the premises include any gardens then they should be spruced up;
    
    
14. if the business assets include a web site then any overdue updates should be carried out;
    
    
15. you should be clear in your mind as to the reason why you are selling the business as it is likely that you will be asked;
    
    
16. you must have the most recent profit and loss statements for the business and it would be of assistance if those statements were available for the past few years if they show a positive trend;
    
    
17. if you are required to have occupational health & safety audits or certification of fire safety then those records should be up to date and readily available;
    
    
18. you should have properly arranged documentation relating to any intellectual property of the business including patents, trade marks, franchise agreements, advertising contracts and the like;
    
    
19. if your business requires any industry particular permits or licences such as a liquor licence then you must be sure that it is current and there will be no difficulty transferring it to the purchaser;
    
    
20. if you operate under a business name you should check that the registration is up to date;
    
    
21. if it is likely that a prospective purchaser would like a longer lease then it may be appropriate to negotiate with your landlord for a variation of your lease to include an additional option to renew;
    
    

 Business Broker

You may wish to sell your business through a business broker or you might try selling it yourself by advertising in the usual places. Always consider a selling agency agreement carefully before signing.

 Sale of Assets or Sale of Shares?

The sale of the business may proceed by selling all of the shares in the company that owns the business assets or alternatively, and more commonly, it will be a sale of business assets. In either case it is important to be sure of who owns each of the business assets being sold. For example, it is not unusual for certain business assets to be in the name of a person or company and other business assets such as the lease might be in the name of a related business entity. These types of problems can be taken care of in the contract for sale of business.

 The Contract

Once a purchaser has been found and the sale price agreed on, a contract for sale of the business must be prepared. For this purpose it is most likely that you will need to annex an inventory of all of the plant, fittings and equipment of the business. Exchanging identical counterparts signed by the vendor and purchaser respectively makes the contract. The contract must specify a "completion period" which is the time between exchange of contracts and completion. It is most important that sufficient time be allowed for all of the work that just be done which might cause delays, such as obtaining the franchisor's consent, obtaining landlord's consent and transferring licences such as a liquor licence.

 Non-competition Clauses

Contracts for sale of business typically have a "vendor restraint clause". This clause normally specifies the time and distance in which the vendor must not participate in any business that would compete with the business being sold. Before deciding on the terms of a restraint clause, you should consider very carefully whether you will need to work in the same industry again. A harsh restraint clause can have the effect of preventing you from earning a living.

 Training the Purchaser

It is common for contracts for sale of business to include provisions relating to training of the purchaser. Typically training occurs either before completion or after completion (and sometimes both). The training period can be a very difficult time because there is a risk of the vendor and purchaser having very different views on what should be done in the business. Typically a vendor would prefer to provide training after settlement.

 Value of the Business

The sale price of a business is of course open to negotiation. There are a number of different ways of valuing businesses. Prior to putting the business on the market you may wish to engage an expert to give advice on the proper price of the business. Valuation of the goodwill of a business takes considerable skill and experience. In any case a business is only worth whatever someone is prepared to pay however during any negotiations you must be very clear on whether the price being discussed is including or excluding GST.

You must be very clear on whether the business is a sale of a "going concern" for the purpose of GST. You must also be very clear on whether the price includes stock. Typically a contract for sale of business will include a separate figure for trading stock, such amount to be finalised subject to a stock valuation immediately prior to completion of the sale. It may be crucial to your tax situation to have an appropriate apportionment of the purchase price as between goodwill and equipment. Your accountant's advice is essential in that regard.

 Procedures

Normally a purchaser of a business will carry out certain investigations or due diligence procedures prior to exchange of contracts. After exchange of contract the purchaser's solicitors must test the warranties in the contract by conducting various searches, enquiries and raising requisitions. They must prepare documents transferring the business assets and arrange for the discharge of any finance secured by the business assets.

Normally the contract will require that you continue to operate the business in an orderly manner during this period. You must be aware of your obligation to maintain levels of stock. It is crucial that you understand your obligation to your employees and the proper process for the termination of their employment and their re-employment by the purchaser. Leave entitlements, superannuation, long service leave, sick leave benefits as well as regular salary payments must all be dealt with properly or else there is a risk of a very expensive dispute.

After completion of the sale it is important that you retain certain business records for the minimum periods prescribed in the taxation legislation. Your accountant must be informed of the details so that appropriate tax returns may be lodged. There are numerous aspects of the matter that must be finalised properly so that you can move on to the next phase of your life.

 Choices

If you are intending to purchase a business then start by deciding whether it's a business you wish to be involved in and whether you will be able to enjoy the long hours that it will take to properly manage and run the business. Your experience and skills and your tastes will to some extent determine your decision at this stage. There is no good in buying a pet shop if you don't like dogs and cats. There is no use buying a restaurant if you don't have an appreciation of food preparation and service to customers.

 Pre-purchase Investigations

If you decide to proceed to purchase then the next step is to examine the most recent balance sheet and profit and loss statements of the business. If necessary engage an accountant or business expert to interpret the financial statements. Examine more than one year's financial statements to see if they show a trend, for example a downward spiral. Base your assessment of the profitability of the business on legitimate tax returns and do not be seduced by stories of the cash nature of the business.

If you have carried out your investigations and negotiated a price then you may be in a position to proceed to exchange of contracts. Prior to exchange of contracts you must be certain that your finance has been arranged and will be available by the end of the completion period specified in the contract. It may be very risky if you proceed to exchange contracts prior to having unconditional written loan approval from your finance institution. It would be most unusual if you were able to negotiate a "subject to finance" clause in your contract, although sometimes it is possible to negotiate vendor finance. If the vendor is prepared to finance your purchase to some extent then it would be normal that you would have to offer security in some form such as personal guarantees, mortgage over real estate, a traders bill of sale over the business assets or a fixed and floating charge over company assets if the purchaser is a company.

Prior to exchange of contracts you must be fully familiar with the terms of the lease being offered as part of the business assets you are purchasing. Clearly you will need to know the amount of rent payable, the outgoings that you will be required to pay, whether there are any options for you to renew the lease, the frequency and nature of the rent reviews. You must also be certain that the local authorities have approved of the use of the premises.

 Non-competition Clauses

You should negotiate an appropriate restraint provision so that the vendor is not free to participate in a new business that might compete with the business that you have purchased. It would be disastrous if you purchased the business only to find that the vendor poached its customers and loured away all the good staff. You should decide whether there are key members of the staff that must be retained and often this will be the vendor of the business or the principal of the vendor company.

 Training

If you are purchasing a business in a field in which you have no experience then it is important that you negotiate appropriate training and tuition periods. These should be specified in the contract and be of such a nature as to ensure a smooth hand over of the business at completion of your purchase. During the tuition period you must be sure that you will have the opportunity to learn all of those things which make the business a success such as suppliers, client lists, marketing techniques, the strengths and weaknesses of the staff members and the general day to day running of the business.

 Asset Protection

Prior to exchange of contracts you must make certain decisions relating to asset protection. This will include choosing the appropriate business entity to conduct the business. This may be either you as a sole trader, as yourself in partnership with another person, a company or a trading trust. All of the asset protection, business succession and taxation aspects should be canvassed fully with your legal and taxation advisers. It is normally too late to change your mind about these things after exchange and is certainly too late after completion of the purchase.

The necessity for a licence to serve alcohol arises in various environments. Typically if you are purchasing a business such as a restaurant, a hotel or a boat intended for commercial harbor cruises then the liquor licence is an essential part of the business which must be maintained strictly in accordance with the law throughout the time of operation of the business. On the other hand circumstances can arise where a liquor licence is necessary for as little as one day. An example of this might be a school fete or a local agricultural show. Accordingly you must consider carefully the type of licence you require.

The legislation governing liquor licences in New South Wales is the Liquor Act 1982. The primary object of the legislation is "harm minimisation". Applications for the grant of a liquor licence or the transfer of an existing licence are made to the Licensing Court of New South Wales. Generally prior to grant or transfer of the liquor licence the Licensing Court will require that the licensee and all staff serving liquor have completed a course approved by the Liquor Administration Board dealing with responsible service of alcohol.

 Types of Licences

Liquor licences may be issued to bona fide catering businesses, rural communities where the local hotel has been lost through closure or removal, functions conducted by bona fide non profit organisations who might hold a dinner, ball, convention, seminar, sporting even, race meeting, trade fair, fete or carnival, hotels, night clubs, large special events. Off licence retail permits the selling of liquor by retail to the public. Vinyerons Licence allows the licensee to sell wine produced at the vineyard. There are also "on licences" which are applicable to aircraft and boats. Of course licences are available to restaurateurs for sale of wine in their restaurants. Licences are also available for theatres, motels, universities and the like.

 Licence Conditions

Licences are invariably granted with conditions and restrictions. A breach of these conditions and restrictions can result in prosecution, disciplinary action, fines, suspension or cancellation of licence and disqualification and disqualification of the licensee. Conditions attached to a licence often relate to the creation of an obligation on the licensee to ensure that the quite and good order of the neighborhood is not disturbed. It is normally a condition of a liquor licence that drinking water is available to patrons free of charge. Certain signs are required to be displayed around licensed premises.

 Courses

Applicants for liquor licences must complete Liquor Administration approved courses. The courses are to teach applicants about the liquor laws and the disciplinary conditions for non-compliance. All courses contain Responsible Service of Alcohol Module. There are some exemptions from the course generally relating to people who have had considerable experience or interstate training.

 Fees

Invariably the grant of a liquor licence will involve payment of a fee. A small initial fee is payable on lodgment of the application for a licence and the balance of the fee is payable on the grant of the licence. In addition to the fee for the grant there are annual fees details of which can be obtained from the Department of Gaming and Racing.

 Probity Checks

Applicants for a liquor licence, whether by transfer or grant of a new licence, will be the subjects of a probity check. The applicant is assessed on their fitness and suitability to hold a liquor licence. An assessment is also carried out of the fitness and suitability of close associates of the applicant. These probity checks include a search of past criminal records.

 Complaints

Your premises may be the subject of complaints, which may be initialed by police, local authorities or local residents. The complaints can relate to noise from the premises or disturbance caused by patrons leaving the premises. Complaints can also be based on violent or anti social behavior of patrons particularly in relation to late trading venues. Complaints are made to the Liquor Administration Board who will send copies to the Local Police and the Local Council.

The Board will convene a conference of interested parties and you will be entitled to appear and provide a written response to the complaint. At the conference the Board can impose additional conditions on the liquor licence issue a warning, take no action or even revoke conditions. The effect can be reduction in hours, prohibition of admission of patrons after certain times, restricting certain types of entertainment, requiring employment of security guards and other harm minimisation conditions. If you feel that the decision of the Board is unfair or unreasonable then you can appeal to the Licensing Court.

Landlords and tenants of commercial premises both have an interest in ensuring that an appropriate binding commercial lease governs their relationship. The landlord is of course interested in obtaining a good return on his investment in the property. This will be achieved by having a good long-term tenant with a stable business. The tenant's interests is focused on the need for appropriate premises for the tenant's business. The success or failure of the business may depend on the lease containing appropriate terms in a number of aspects.

 Premises

When negotiating a commercial lease both parties must be certain of the definition of the premises. This is not normally a difficult question of the premises consist of the whole of a lot, however it is not unusual for misunderstandings to arise in respect of whether car spaces, balconies, courtyards, storage rooms, ceiling spaces, external surfaces of buildings, stairwells, roofs, rooftops and signage areas are included as part of the leased premises. A commercial lease should be unambiguous in defining the premises.

 Term

Both parties to a commercial lease must give consideration to the length of the lease and whether the tenant will be granted an option to renew for a further term (or terms).

 Rent

The lease must be unambiguous as to the rent payable by the tenant. You must be clear as to whether any amounts shown in the lease are inclusive or exclusive of GST. Lease provisions permitting annual increases in rent should be able to be easily understood and applied in practice. Commonly commercial leases allow for CPI increases annually. Sometimes commercial leases specify that there will be an annual increase in rent to a fixed amount or by a fixed percentage. It is also common to see provisions requiring an increase to "current market rent". Typically current market rent is determined by negotiation between the landlord and tenant, and failing negotiation by a registered valuer.

 Outgoings and Services

A commercial lease must specify whether the tenant is liable to pay the outgoings of the premises in addition to rent. Alternatively the lease may specify that the outgoings are payable by the landlord. This is sometimes referred to as having a rent that is inclusive of outgoings. It is important to be clear on the difference between outgoings and services.

Generally "outgoings" are those expenses relating to the premises which would be incurred regardless of whether the premises were occupied or not. These include council rates, water rates, land tax, insurance premiums, strata levies and the like. On the other hand "services" typically includes, telephone, gas, electricity, cleaning, water usage and excess garbage disposal.

 Bonds

Typically a landlord will require some form of security for payment of rent and other liabilities of the tenant. Such security typically is in the form of payment of a security deposit expressed in terms of a number of month's rent plus GST and outgoings. Generally a landlord will permit the security deposit to be provided in the form of a bank guarantee. Landlords often require the security of personal guarantees of the directors of a corporate tenant.

 Repairs

The parties to a commercial lease must ensure that the leased document clearly specifies who is responsible for maintenance and repair of the premises including air conditioning systems. The document should also clearly specify the party responsible for maintaining the premises in respect of occupational health and safety and fire safety.

 Consents

A tenant under a commercial lease should keep in mind that there are numerous actions which he or she may take at the premises which may require the landlord's prior consent. For example alterations to the premises, installation of signs, transfer of the lease to a new tenant (typically on the sale of the business operated at the premises).

 Disputes

Both landlords and tenants should be aware that if a dispute arises between them then the first thing to do to resolve a dispute is to read the lease document. A well-drafted commercial lease is an accumulation of experiences, perhaps dating back hundreds of years, and accordingly it is most likely that the lease will include a provision specifying which party is liable in the circumstances of the dispute. The remedies available to the landlord and tenant under a commercial lease can be harsh in their operation and invariably proper respectful communication and bona fide negotiations are important.

Your commercial lease will be governed by the Retail Leases Act 1994 (NSW) if the business carried on in the premises is wholly or predominately one or more of the businesses specified in Schedule 1 of the Act. Do not guess whether your lease comes under the Act. There is no alternative to searching the long list of businesses, which appears in Schedule 1.

 Disclosure

The Retail Leases Act appears to have been drafted with the intention of providing additional protection for tenants against landlords. Apart of this process includes the creation of obligations on the landlord to provide the tenant with more information then might otherwise be available to the tenant. A draft lease must be available for inspection by prospective tenants before a shop is advertised or before a tenant is offered a lease. It is not always clear how this provision works when the landlord is not always able to determine whether his premises would be attractive to potential retail tenants. In any case if a prospective tenant wishes to enter into a retail lease then the tenant must be provided with a Disclosure Statement in a prescribed form at least seven (7) days before the lease is entered into. Failure on the part of the landlord to give the tenant a proper Disclosure Statement at the proper time may enable the tenant to terminate the lease during the first six months or perhaps claim compensation from the landlord if the information in the Disclosure Statement is deficient.

 Term

Leases under governed by the Retail Leases Act must be for at least five years (including any options to renew for further terms). Retail Leases for shorter terms are possible only if the tenant's solicitors provide a certificate certifying that the solicitor explained to the tenant that Section 16 of the Act will not apply.

 No Ratchet Clauses

The Act has the effect of invalidating "ratchet clauses". Accordingly a retail lease must not include a provision which prevents rent from decreasing if a review to current market rent occurs or if CPI is negative. Similarly provisions that permit the landlord to charge the higher of two alternative methods of determining rent are invalid.

 Outgoings

There appears to be an intention on the part of those who drafted the Retail Leases Act to encourage leases that express the rent as being inclusive of outgoings. If the lease requires that the tenant pay outgoings in addition to rent then the landlord is required to provide substantial amounts of information to the tenant in that regard and in some cases the landlord may even be required to provide the tenant with an auditor's report (the cost of which is to be borne by the landlord).

 Consents

The Retail Leases Act limits the basis on which landlords can withhold their consent to the transfer of the lease to a new tenant. Generally the Act precludes a landlord from imposing conditions on a transfer to a new tenant except conditions that require that the proposed new tenant has at least the same business experience and financial resources as the initial tenant.

 Rent Determination

Tenants of non-retail leases who wish to exercise an option to renew have to face the difficulty that they are required to exercise the option before knowing what the rent will be if the lease stipulates that the new rent will be current market rent. Under the Retail Leases Act the tenant may insist on a rent determination prior to exercising the option. If the tenant requests a rent determination within the specified time limits then the period for exercise of the option is extended and a valuer must be appointed. If used properly this provision permits the tenant to consider the new rent before he or she is bound for the further term.

 Extension of Term

The Act also includes the provision requiring that the landlord give the tenant written notice of whether the landlord intends to offer the tenant a renewed lease or indicating that no renewal or extension is going to be offered. If the landlord fails to give either notification within the specified time then the tenant may have the option to extend the lease for a further six months. This aspect of the Act is a further example of the necessity for both the landlord and the tenant to make appropriate diary entries to serve as reminders of actions that should be taken.

The Retail Leases Act adds extra layers of complexity to an already complex area of the law and both landlords and tenants should carefully consider the effects of the Act before taking action.

You may have reviewed your current home loan or investment property loans and be considering refinancing, perhaps with a different financial institution. You may consider refinancing for different reasons, such as wishing to increase your borrowings for a particular purpose, or you may be wishing to take advantage of lower interest rates. Your decision to go with a different financial institution is one that will involve balancing the cost of refinancing against the saving available through lower interest rates. In any case a refinance is going to result in costs and accordingly it will always be sometime before you reap the benefit of lower rates to the extent that you will have recouped the costs.

You may be wishing to refinance to get out of a high interest loan and into a loan with a lower interest rate, you may wish to refinance in order to draw on equity that has grown due to the appreciation of the value of your property, you may wish to refinance to get a loan with better features such as fixed rate options, split loans, line of credit type facilities, redraw facilities and the like. If the cost of refinancing seems prohibitive then an alternative is to approach your bank and enquire as to whether they will agree to vary your loan terms to give you those things that you are seeking from a refinance.

Clearly refinancing to take advantage of lower interest rates is more likely to give you a good result if you intend to keep the property for a longer period. You will be unlikely to get any benefit from refinancing if you end up selling soon after the refinance.

Before committing to a refinance you should insist that you be provided with a detailed costing. Some of the costs will be incurred in discharging your existing loan as you may be liable for a discharge fee, legal costs, early repayment fees as well as interest break costs. Costs can be considerable if you have a fixed interest loan and you are paying out the loan at a time when interest rates are lower as your loan is likely to have provisions which require the application of a formula to reimburse the lender for their lost interest.

The new financial institution will have numerous fees including an application fee, valuation fee, legal costs, title searches, registration fees and they may insist on mortgage insurance, a survey, a council building certificate and perhaps all the property enquiries.

If you are considering refinancing an investment property then there may be some affect on your tax situation. In those circumstances it is most important that you refer the question of refinancing to your tax adviser or accountant.

Regardless of your reason for refinancing you should be prepared to consider the loans offered by a number of financial institutions. You may wish to engage a mortgage broker to assist you in this regard. A loan officer of the financial institutions and a mortgage broker should be able to explain to you the different types of loans such as fixed interest, interest only, principal and interest, variable rates as well as the different "honeymoon periods" that are sometimes offered. You must be aware that obtaining a fixed interest loan can backfire if rates fall. Alternately you will make considerable savings if you obtain a fixed interest loan for three or five years at a time when interest rates rise.

Stamp duty is payable on loans financing property. There is a concession that may be available to you on refinancing. You should make proper enquiries as to whether the stamp duty concession is available to you before committing to refinance.

 Put them in Writing

Circumstances may arise where you wish to make a loan to assist someone to buy a property, finance their business, further their education, to travel or otherwise assist with their personal finances. While it would seem unnecessary for us to say that all loans should be evidenced in writing, it is very common for us to be engaged by clients to assist them in recovering substantial amounts owed under a loan arrangement where nothing was in writing.

 Loan Documents

If you are intending to lend money to another person or a company you should be very careful not to commit to the loan without leaving enough time for loan documentation to be prepared, amendments negotiated and original documents executed. You should be careful to stipulate that before you provide the loan amount appropriate documentation must be signed in a form approved by you.

In order to prepare loan documentation you will need to decide on the amount of money that you are lending, called the principal sum. You may negotiate that the principal sum be advanced as a single lump sum or in progress payments, depending on the needs of the parties.

 Interest

You will also have to have agreement between yourself and the borrower as to whether interest is payable. Some lenders are prepared to give loans to family members interest free. On the other hand we sometimes act for lenders who are lending on an arms length, purely commercial basis where the interest rate is at a premium. In all cases we would recommend that interest be expressed in a way that provides for a higher rate of interest if the borrower defaults.

 Repayment

You should also decide whether the money you are lending has to be repaid at a fixed date in the future or whether there are to be repayment instalments of principal during the term of the loan. Some loans are for extremely short periods such as one (1) month. Often we deal with loans that are repayable in three (3) or five (5) years. Occasionally loans to family members are expressed to be repayable or else to be forgiven on the death of the lender. Another alternative is that the loan can express the repayment date as being triggered by an event such as the sale of a property, marriage, divorce, attaining a certain age or it can be repayable on the lender giving twenty eight (28) days notice at any time.

You and the borrower may agree that there is to be only one repayment of principal and interest at the end of the loan. Alternately the arrangement may be that repayments of interest only are to occur at regular intervals throughout the term, or you may require that there be repayments of principal and interest monthly, quarterly, annually etc. Another possible arrangement is that the lender must make repayments of a fixed amount until the loan is repaid. In any case you may wish to consult your accountant regarding the best arrangement. You should take the opportunity to get advice on the tax implications of the transaction.

 Costs

The borrower commonly pays the legal costs and disbursements of formalising a loan arrangement. The loan documentation should reflect this. However it is not uncommon for loans between parents and children that the parents carry the burden of paying the costs. In the more commercial loans the parties can agree that the legal costs and disbursements be deducted from the principal sum before it is handed over. Similarly the stamp duty payable on the loan documents is normally payable by the borrower.

 Security

In all cases of loans it is recommended that the borrower give the lender some security to ensure repayment. The best security of all is a registered first mortgage over real estate. In those cases the lender at the borrower's cost should obtain a valuation of the property. The lender will use the valuation to determine whether there is a safety margin available in the security over and above the principal sum and the interest and costs that will accrue throughout the term of the loan. If you are lending to a company then you may be able to obtain security in the form of a "fixed and floating charge".

A charge over company assets is similar to a mortgage over real estate. If you were lending to a company it would be normal to expect that the directors of the company give personal guarantees that will make them liable if the company defaults. If you are lending to an individual who operates a business then you may wish to take security in the form of a "bill of sale". A bill of sale is similar in nature to a mortgage over chattels, goodwill of the business, debts owed to the business and the like.

Loans can easily become a major source of aggravation for lenders whose initial motivation is often just to help out the borrower. Regardless of whether you are lending to a close family member with no real intention of being repaid, or whether you are lending to someone on a semi-commercial basis with the intention of a reasonable return, or whether you are lending to a complete stranger on a purely commercial arms length basis, you should allow sufficient time to properly negotiate and formalise all of the terms of the loan agreement, you should properly consider the risks that you will not be paid the amounts due to you within the specified term of the loan (or perhaps at all) and you should look carefully at taking proper security to improve your chances of getting something back if it all goes wrong.

A discretionary trust may be a useful tool to assist you with your tax planning and asset protection. A trust is normally established by way of a "Trust Deed" under which a person called a "Settlor" gives the "Trustee" an asset (normally initially money) to hold on behalf of others normally called "Beneficiaries".

The trust deed will empower the Trustee to hold assets (normally called capital) and accumulate income on the capital. The Trust Deed normally gives the trustee the right to distribute interest and/or capital to the specified beneficiaries. By this means the income of the trust may be spread among a number of beneficiaries who may be entitled to lower tax rates than would be applicable if the interest was paid to a single beneficiary.

The capital and income of the trust is normally not available to creditors of beneficiaries, and hence the asset protection element. In this context creditors includes applicants under the Family Provision Act as well as claimants under the Family Law Act and de facto spouses claiming property settlements under the Property (Relationships) Act.

Proper use of discretionary trusts can result in financial security for your family throughout their lives. If properly established you will be able to control the assets of the trust however trust assets will not form part of your estate and there are certainly limitations on their use for the purpose of "ruling from the grave".

If you are contemplating establishing a discretionary trust, or if you have one in existence, then in order to carry out appropriate estate planning then you must understand the role of the "Appointor". It is the Appointor who can hire and fire the trustee. The circumstances in which the Appointor can exercise their power will normally be specified in the trust deed, which may or may not pass the power of appointment to the executor named in your will. In any case an Appointor should never exercise their powers without properly considering the income tax, stamp duty, capital gains tax implications.

While the discretionary trust is commonly used in the context of achieving tax benefits and asset protection within the family, there are of course other applications such as the unit trusts applicable in the business context as well as trusts fo